sm-20220930

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

☑ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2022

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ___________ to ___________

Commission File Number 001-31539

SM ENERGY COMPANY

(Exact name of registrant as specified in its charter)

Delaware

41-0518430

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

1700 Lincoln Street, Suite 3200, Denver, Colorado

80203

(Address of principal executive offices)

(Zip Code)

(303) 861-8140

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading symbol(s)	Name of each exchange on which registered
Common stock, $0.01 par value	SM	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☑

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

As of October 27, 2022, the registrant had 122,796,046 shares of common stock outstanding.

TABLE OF CONTENTS


Item		Page
	Cautionary Information about Forward-Looking Statements	3

	Part I	4

Item 1.	Financial Statements (unaudited)	4

	Condensed Consolidated Balance Sheets September 30, 2022, and December 31, 20 2 1	4

	Condensed Consolidated Statements of Operations Three and Nine Months Ended September 30, 2022, and 2021	5

	Condensed Consolidated Statements of Comprehensive Income (Loss) Three and Nine Months Ended September 30, 2022, and 2021	6

	Condensed Consolidated Statements of Stockholders’ Equity Continuous Quarterly Presentation Ended September 30, 2022, and 2021	7

	Condensed Consolidated Statements of Cash Flows Nine Months Ended September 30, 2022, and 2021	9

	Notes to Condensed Consolidated Financial Statements	10

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	25

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	42

Item 4.	Controls and Procedures	42

	Part II	43

Item 1.	Legal Proceedings	43

Item 1A.	Risk Factors	43

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	44



Item 6.	Exhibits	45

	Signatures	46

Cautionary Information about Forward-Looking Statements

This Report on Form 10-Q (“Form 10-Q” or “this report”) contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (“Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (“Exchange Act”). All statements included in this report, other than statements of historical facts, that address activities, conditions, events, or developments with respect to our financial condition, results of operations, business prospects or economic performance that we expect, believe, or anticipate will or may occur in the future, or that address plans and objectives of management for future operations, are forward-looking statements. The words “anticipate,” “assume,” “believe,” “budget,” “could,” “estimate,” “expect,” “forecast,” “goal,” “intend,” “pending,” “plan,” “potential,” “projected,” “will,” and similar expressions are intended to identify forward-looking statements. Forward-looking statements appear throughout this report, and include statements about such matters as:

•business strategies and other plans and objectives for future operations, including plans for expansion and growth of operations or to defer capital investment, plans with respect to future dividend payments, debt redemptions or equity repurchases, capital markets activities, environmental, social, and governance (“ESG”) goals and initiatives, and our outlook on our future financial condition or results of operations;

•the amount and nature of future capital expenditures and the availability of liquidity and capital resources to fund capital expenditures;

•our outlook on prices for future crude oil, natural gas, and natural gas liquids (also referred to throughout this report as “oil,” “gas,” and “NGLs,” respectively), well costs, service costs, production costs, and general and administrative costs;

•armed conflict, political instability, or civil unrest in crude oil and natural gas producing regions, including the ongoing conflict between Russia and Ukraine, and related potential effects on laws and regulations, or the imposition of economic or trade sanctions;

•any changes to the borrowing base or aggregate lender commitments under our Seventh Amended and Restated Credit Agreement (“Credit Agreement”);

•cash flows, liquidity, interest and related debt service expenses, changes in our effective tax rate, and our ability to repay debt in the future;

•the effects of the global COVID-19 pandemic (“Pandemic”) on us, our industry, our financial condition, and our results of operations;

•our drilling and completion activities and other exploration and development activities, each of which could be impacted by supply chain disruptions, our ability to obtain permits and governmental approvals, and plans by us, our joint development partners, and/or other third-party operators;

•possible acquisitions and divestitures, including the possible divestiture or farm-out of, or farm-in or joint development of, certain properties;

•oil, gas, and NGL reserve estimates and estimates of both future net revenues and the present value of future net revenues associated with those reserve estimates, as well as the conversion of proved undeveloped reserves to proved developed reserves;

•our expected future production volumes, identified drilling locations, as well as drilling prospects, inventories, projects and programs; and

•other similar matters, such as those discussed in Management’s Discussion and Analysis of Financial Condition and Results of Operations in Part I, Item 2 of this report.

Our forward-looking statements are based on assumptions and analyses made by us in light of our experience and our perception of historical trends, current conditions, expected future developments, and other factors we believe are appropriate under the circumstances. We caution you that forward-looking statements are not guarantees of future performance and these statements are subject to known and unknown risks and uncertainties, which may cause our actual results or performance to be materially different from any future results or performance expressed or implied by the forward-looking statements. Factors that may cause our financial condition, results of operations, business prospects or economic performance to differ from expectations include the factors discussed in the Risk Factors section in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2021 (“2021 Form 10-K”).

The forward-looking statements in this report speak only as of the filing of this report. Although we may from time to time voluntarily update our prior forward-looking statements, we disclaim any commitment to do so except as required by applicable securities laws.

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

SM ENERGY COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(in thousands, except share data)


	September 30, 2022		December 31, 2021
ASSETS
Current assets:
Cash and cash equivalents	$	498,435	$	332,716
Accounts receivable	258,003		247,201
Derivative assets	42,207		24,095
Prepaid expenses and other	9,133		9,175
Total current assets	807,778		613,187
Property and equipment (successful efforts method):
Proved oil and gas properties	9,914,261		9,397,407
Accumulated depletion, depreciation, and amortization	(6,054,796)		(5,634,961)
Unproved oil and gas properties	579,261		629,098
Wells in progress	276,298		148,394

Other property and equipment, net of accumulated depreciation of $62,950 and $62,359, respectively	31,831		36,060
Total property and equipment, net	4,746,855		4,575,998
Noncurrent assets:
Derivative assets	36,048		239
Other noncurrent assets	60,832		44,553
Total noncurrent assets	96,880		44,792
Total assets	$	5,651,513	$	5,233,977
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued expenses	$	631,984	$	563,306

Derivative liabilities	174,717		319,506
Other current liabilities	7,316		6,515
Total current liabilities	814,017		889,327
Noncurrent liabilities:
Revolving credit facility	—		—
Senior Notes, net	1,571,429		2,081,164


Asset retirement obligations	97,724		97,324

Deferred income taxes	212,470		9,769
Derivative liabilities	14,506		25,696
Other noncurrent liabilities	73,705		67,566
Total noncurrent liabilities	1,969,834		2,281,519

Commitments and contingencies (note 6)

Stockholders’ equity:
Common stock, $0.01 par value - authorized: 200,000,000 shares; issued and outstanding: 122,796,046 and 121,862,248 shares, respectively	1,228		1,219
Additional paid-in capital	1,810,352		1,840,228
Retained earnings	1,068,385		234,533
Accumulated other comprehensive loss	(12,303)		(12,849)
Total stockholders’ equity	2,867,662		2,063,131
Total liabilities and stockholders’ equity	$	5,651,513	$	5,233,977

The accompanying notes are an integral part of these condensed consolidated financial statements.

SM ENERGY COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

(in thousands, except per share data)


	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2022		2021		2022		2021
Operating revenues and other income:
Oil, gas, and NGL production revenue	$	827,558	$	759,813	$	2,676,656	$	1,745,547

Other operating income	7,893		426		10,673		22,387
Total operating revenues and other income	835,451		760,239		2,687,329		1,767,934
Operating expenses:
Oil, gas, and NGL production expense	159,961		135,745		470,245		362,131
Depletion, depreciation, amortization, and asset retirement obligation liability accretion	145,865		202,701		460,169		574,375
Exploration	14,203		8,709		44,117		26,746

Impairment	1,077		8,750		6,466		26,250
General and administrative	28,428		25,530		81,715		74,883
Net derivative (gain) loss	(137,577)		209,146		385,180		924,183
Other operating expense, net	1,213		43,401		2,614		44,654
Total operating expenses	213,170		633,982		1,450,506		2,033,222
Income (loss) from operations	622,281		126,257		1,236,823		(265,288)
Interest expense	(22,825)		(40,861)		(97,708)		(120,268)
Gain (loss) on extinguishment of debt	—		5		(67,605)		(2,139)
Other non-operating income (expense), net	1,163		153		930		(1,071)
Income (loss) before income taxes	600,619		85,554		1,072,440		(388,766)
Income tax (expense) benefit	(119,379)		39		(218,951)		95
Net income (loss)	$	481,240	$	85,593	$	853,489	$	(388,671)

Basic weighted-average common shares outstanding	123,195		121,457		122,318		118,224
Diluted weighted-average common shares outstanding	124,279		123,851		124,233		118,224
Basic net income (loss) per common share	$	3.91	$	0.70	$	6.98	$	(3.29)
Diluted net income (loss) per common share	$	3.87	$	0.69	$	6.87	$	(3.29)
Dividends per common share	$	0.15	$	0.01	$	0.16	$	0.02

The accompanying notes are an integral part of these condensed consolidated financial statements.

SM ENERGY COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED)

(in thousands)


	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2022		2021		2022		2021
Net income (loss)	$	481,240	$	85,593	$	853,489	$	(388,671)
Other comprehensive income, net of tax:
Pension liability adjustment	182		246		546		1,029
Total other comprehensive income, net of tax	182		246		546		1,029
Total comprehensive income (loss)	$	481,422	$	85,839	$	854,035	$	(387,642)

The accompanying notes are an integral part of these condensed consolidated financial statements.

SM ENERGY COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED)

(in thousands, except share data and dividends per share)


				Additional Paid-in Capital				Accumulated Other Comprehensive Loss		Total Stockholders’ Equity
	Common Stock					Retained Earnings
	Shares	Amount
Balances, December 31, 2021	121,862,248	$	1,219	$	1,840,228	$	234,533	$	(12,849)	$	2,063,131
Net income	—	—		—		48,764		—		48,764
Other comprehensive income	—	—		—		—		182		182
Cash dividends declared, $0.01 per share	—	—		—		(1,218)		—		(1,218)

Issuance of common stock upon vesting of RSUs, net of shares used for tax withholdings	1,929	—		(24)		—		—		(24)
Stock-based compensation expense	—	—		4,274		—		—		4,274


Balances, March 31, 2022	121,864,177	$	1,219	$	1,844,478	$	282,079	$	(12,667)	$	2,115,109
Net income	—	—		—		323,485		—		323,485
Other comprehensive income	—	—		—		—		182		182

Issuance of common stock under Employee Stock Purchase Plan	65,634	1		1,644		—		—		1,645

Stock-based compensation expense	29,471	—		4,479		—		—		4,479


Balances, June 30, 2022	121,959,282	$	1,220	$	1,850,601	$	605,564	$	(12,485)	$	2,444,900
Net income	—	—		—		481,240		—		481,240
Other comprehensive income	—	—		—		—		182		182
Cash dividends declared, $0.15 per share	—	—		—		(18,419)		—		(18,419)

Issuance of common stock upon vesting of RSUs and settlement of PSUs, net of shares used for tax withholdings	1,289,498	13		(25,118)		—		—		(25,105)
Stock-based compensation expense	—	—		5,105		—		—		5,105

Purchase of shares under Stock Repurchase Program	(452,734)	(5)		(20,236)		—		—		(20,241)
Balances, September 30, 2022	122,796,046	$	1,228	$	1,810,352	$	1,068,385	$	(12,303)	$	2,867,662

The accompanying notes are an integral part of these condensed consolidated financial statements.

SM ENERGY COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED) (Continued)

(in thousands, except share data and dividends per share)


				Additional Paid-in Capital				Accumulated Other Comprehensive Loss		Total Stockholders’ Equity
	Common Stock					Retained Earnings (Deficit)
	Shares	Amount
Balances, December 31, 2020	114,742,304	$	1,147	$	1,827,914	$	200,697	$	(13,598)	$	2,016,160
Net loss	—	—		—		(251,269)		—		(251,269)
Other comprehensive income	—	—		—		—		191		191
Cash dividends declared, $0.01 per share	—	—		—		(1,147)		—		(1,147)


Stock-based compensation expense	—	—		5,737		—		—		5,737


Balances, March 31, 2021	114,742,304	$	1,147	$	1,833,651	$	(51,719)	$	(13,407)	$	1,769,672
Net loss	—	—		—		(222,995)		—		(222,995)
Other comprehensive income	—	—		—		—		592		592
Cash dividends, $0.01 per share	—	—		—		(31)		—		(31)
Issuance of common stock under Employee Stock Purchase Plan	252,665	3		1,312		—		—		1,315

Stock-based compensation expense	57,795	1		3,955		—		—		3,956
Issuance of common stock through cashless exercise of Warrants	5,918,089	59		(59)		—		—		—

Balances, June 30, 2021	120,970,853	$	1,210	$	1,838,859	$	(274,745)	$	(12,815)	$	1,552,509
Net income	—	—		—		85,593		—		85,593
Other comprehensive income	—	—		—		—		246		246
Cash dividends declared, $0.01 per share	—	—		—		(1,215)		—		(1,215)

Issuance of common stock upon vesting of RSUs and settlement of PSUs, net of shares used for tax withholdings	502,937	5		(4,737)		—		—		(4,732)
Stock-based compensation expense	—	—		4,498		—		—		4,498


Balances, September 30, 2021	121,473,790	$	1,215	$	1,838,620	$	(190,367)	$	(12,569)	$	1,636,899

The accompanying notes are an integral part of these condensed consolidated financial statements.

SM ENERGY COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(in thousands)


	For the Nine Months Ended September 30,
	2022		2021
Cash flows from operating activities:
Net income (loss)	$	853,489	$	(388,671)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:

Depletion, depreciation, amortization, and asset retirement obligation liability accretion	460,169		574,375

Impairment	6,466		26,250
Stock-based compensation expense	13,858		14,191
Net derivative loss	385,180		924,183
Derivative settlement loss	(595,080)		(480,262)
Amortization of debt discount and deferred financing costs	8,910		13,350
Loss on extinguishment of debt	67,605		2,139
Deferred income taxes	202,996		(282)
Other, net	7,668		(7,301)
Net change in working capital	(13,230)		52,170





Net cash provided by operating activities	1,398,031		730,142

Cash flows from investing activities:

Capital expenditures	(591,846)		(550,265)
Other, net	(596)		5,514
Net cash used in investing activities	(592,442)		(544,751)

Cash flows from financing activities:
Proceeds from revolving credit facility	—		1,649,500
Repayment of revolving credit facility	—		(1,742,500)
Net proceeds from Senior Notes	—		392,771
Cash paid to repurchase Senior Notes	(584,946)		(450,776)
Repurchase of common stock	(20,241)		—
Net proceeds from sale of common stock	1,645		1,315
Dividends paid	(1,218)		(1,178)
Other, net	(35,110)		(4,733)
Net cash used in financing activities	(639,870)		(155,601)

Net change in cash, cash equivalents, and restricted cash	165,719		29,790
Cash, cash equivalents, and restricted cash at beginning of period	332,716		10
Cash, cash equivalents, and restricted cash at end of period	$	498,435	$	29,800

Supplemental schedule of additional cash flow information and non-cash activities:
Operating activities:
Cash paid for interest, net of capitalized interest	$	(125,668)	$	(126,228)

Investing activities:
Increase in capital expenditure accruals and other	$	50,590	$	8,885
Non-cash financing activities (1)

____________________________________________

(1) Please refer to Note 5 - Long-Term Debt for discussion of the debt transactions executed during the nine months ended September 30, 2022, and 2021.

The accompanying notes are an integral part of these condensed consolidated financial statements.

SM ENERGY COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note 1 - Summary of Significant Accounting Policies

Description of Operations

SM Energy Company, together with its consolidated subsidiaries (“SM Energy” or the “Company”), is an independent energy company engaged in the acquisition, exploration, development, and production of oil, gas, and NGLs in the state of Texas.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements include the accounts of the Company and have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information, the instructions to Quarterly Report on Form 10-Q, and Regulation S-X. These financial statements do not include all information and notes required by GAAP for annual financial statements. However, except as disclosed herein, there has been no material change in the information disclosed in the notes to the consolidated financial statements included in the 2021 Form 10-K. In the opinion of management, all adjustments, consisting of normal recurring adjustments considered necessary for a fair presentation of interim financial information, have been included. Operating results for the periods presented are not necessarily indicative of expected results for the full year. In connection with the preparation of the Company’s unaudited condensed consolidated financial statements, the Company evaluated events subsequent to the balance sheet date of September 30, 2022, and through the filing of this report. Additionally, certain prior period amounts have been reclassified to conform to current period presentation in the accompanying unaudited condensed consolidated financial statements.

Significant Accounting Policies

The significant accounting policies followed by the Company are set forth in Note 1 - Summary of Significant Accounting Policies in the 2021 Form 10-K and are supplemented by the notes to the unaudited condensed consolidated financial statements included in this report. These unaudited condensed consolidated financial statements should be read in conjunction with the 2021 Form 10-K.

Recently Issued Accounting Standards

In September 2022, the Financial Accounting Standards Board issued Accounting Standards Update (“ASU”) No. 2022-04, Liabilities - Supplier Finance Programs (Subtopic 405-50): Disclosure of Supplier Finance Program Obligations (“ASU 2022-04”). ASU 2022-04 was issued to enhance the transparency of supplier finance programs and implement explicit GAAP disclosure requirements for those programs. The guidance is to be applied retrospectively to each period in which a balance sheet is presented, except for the amendment on rollforward information, which is to be applied prospectively. ASU 2022-04 is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years, except for the amendment on rollforward information, which is effective for fiscal years beginning after December 15, 2023. Early adoption is permitted. The Company is evaluating the impact of ASU 2022-04 on its disclosures.

As of September 30, 2022, and through the filing of this report, no other ASUs have been issued and not yet adopted that are applicable to the Company and that would have a material effect on the Company’s unaudited condensed consolidated financial statements and related disclosures.

Note 2 - Revenue from Contracts with Customers

The Company recognizes its share of revenue from the sale of produced oil, gas, and NGLs from its Midland Basin and South Texas assets. Oil, gas, and NGL production revenue presented within the accompanying unaudited condensed consolidated statements of operations (“accompanying statements of operations”) is reflective of the revenue generated from contracts with customers.

The tables below present oil, gas, and NGL production revenue by product type for each of the Company’s operating areas for the three and nine months ended September 30, 2022, and 2021:


	Midland Basin						South Texas						Total
	Three Months Ended September 30,						Three Months Ended September 30,						Three Months Ended September 30,
	2022			2021			2022			2021			2022			2021

	(in thousands)
Oil production revenue	$	420,838		$	501,071		$	105,095		$	57,323		$	525,933		$	558,394
Gas production revenue	123,912			96,082			110,641			52,878			234,553			148,960
NGL production revenue	315			103			66,757			52,356			67,072			52,459
Total	$	545,065		$	597,256		$	282,493		$	162,557		$	827,558		$	759,813
Relative percentage	66		%	79		%	34		%	21		%	100		%	100		%


	Midland Basin						South Texas						Total
	Nine Months Ended September 30,						Nine Months Ended September 30,						Nine Months Ended September 30,
	2022			2021			2022			2021			2022			2021

	(in thousands)
Oil production revenue	$	1,449,660		$	1,191,668		$	350,594		$	108,871		$	1,800,254		$	1,300,539
Gas production revenue	363,728			205,323			282,201			121,630			645,929			326,953
NGL production revenue	597			315			229,876			117,740			230,473			118,055
Total	$	1,813,985		$	1,397,306		$	862,671		$	348,241		$	2,676,656		$	1,745,547
Relative percentage	68		%	80		%	32		%	20		%	100		%	100		%

The Company recognizes oil, gas, and NGL production revenue at the point in time when custody and title (“control”) of the product transfers to the purchaser, which differs depending on the applicable contractual terms. Transfer of control drives the presentation of transportation, gathering, processing, and other post-production expenses (“fees and other deductions”) within the accompanying statements of operations. Fees and other deductions incurred by the Company prior to control transfer are recorded within the oil, gas, and NGL production expense line item on the accompanying statements of operations. When control is transferred at or near the wellhead, sales are based on a wellhead market price that is impacted by fees and other deductions incurred by the purchaser subsequent to the transfer of control. Please refer to Note 2 - Revenue from Contracts with Customers in the 2021 Form 10-K for more information regarding the types of contracts under which oil, gas, and NGL production revenue is generated.

Significant judgments made in applying the guidance in Accounting Standards Codification Topic 606, Revenue from Contracts with Customers, relate to the point in time when control transfers to purchasers in gas processing arrangements with midstream processors. The Company does not believe that significant judgments are required with respect to the determination of the transaction price, including amounts that represent variable consideration, as volume and price carry a low level of estimation uncertainty given the precision of volumetric measurements and the use of index pricing with generally predictable differentials. Accordingly, the Company does not consider estimates of variable consideration to be constrained.

The Company’s performance obligations arise upon the production of hydrocarbons from wells in which the Company has an ownership interest. The performance obligations are considered satisfied upon control transferring to a purchaser at the wellhead, inlet, or tailgate of the midstream processor’s processing facility, or other contractually specified delivery point. The time period between production and satisfaction of performance obligations is generally less than one day, therefore there are no material unsatisfied or partially unsatisfied performance obligations at the end of the reporting period.

Revenue is recorded in the month when performance obligations are satisfied. However, settlement statements from the purchasers of hydrocarbons and the related cash consideration are received 30 to 90 days after production has occurred. As a result, the Company must estimate the amount of production delivered to the customer and the consideration that will ultimately be received for sale of the product. Estimated revenue due to the Company is recorded within the accounts receivable line item on the accompanying unaudited condensed consolidated balance sheets (“accompanying balance sheets”) until payment is received. The accounts receivable balances from contracts with customers within the accompanying balance sheets as of September 30, 2022, and December 31, 2021, were $220.0 million and $215.6 million, respectively. To estimate accounts receivable from contracts with customers, the Company uses knowledge of its properties, historical performance, contractual arrangements, index pricing, quality and transportation differentials, and other factors as the basis for these estimates. Differences between estimates and actual amounts received for product sales are recorded in the month that payment is received from the purchaser.

Note 3 - Equity

Stock Repurchase Program

On September 7, 2022, the Company announced that its Board of Directors approved a stock repurchase program authorizing the Company to repurchase up to $500.0 million in aggregate value of its common stock through December 31, 2024 (“Stock Repurchase Program”). The Stock Repurchase Program permits the Company to repurchase shares of its common stock from time to time in open market transactions, through privately negotiated transactions or by other means in accordance with federal securities laws and subject to certain provisions of the Credit Agreement and the indentures governing the Senior Notes, as defined in Note 5 - Long-Term Debt. The Company intends to fund repurchases from available working capital and cash provided by operating activities. Stock repurchases may also be funded with borrowings under the Credit Agreement. The timing, as well as the number and value of shares repurchased under the Stock Repurchase Program, will be determined by certain authorized officers of the Company at their discretion and will depend on a variety of factors, including the market price of the Company’s common stock, general market and economic conditions and applicable legal requirements. The value of shares authorized for repurchase by the Board of Directors does not require the Company to repurchase such shares or guarantee that such shares will be repurchased, and the Stock Repurchase Program may be suspended, modified, or discontinued at any time without prior notice. No assurance can be given that any particular number or dollar value of its shares will be repurchased by the Company. The Stock Repurchase Program terminates and supersedes the August 1998 authorization to repurchase common stock, under which 3,072,184 shares remained available for repurchase prior to termination.

During the three months ended September 30, 2022, the Company repurchased and subsequently retired 452,734 shares of its common stock at a weighted-average share price of $44.69 for a total cost of $20.2 million, excluding commissions and fees. As of September 30, 2022, $479.8 million remained available for repurchases of the Company’s outstanding common stock under the Stock Repurchase Program.

Warrants

On June 17, 2020, the Company issued warrants to purchase up to an aggregate of approximately 5.9 million shares, or approximately five percent of its then outstanding common stock, at an exercise price of $0.01 per share (“Warrants”). The Warrants became exercisable at the election of the holders on January 15, 2021, pursuant to the terms of the Warrant Agreement, dated June 17, 2020 (“Warrant Agreement”). The Warrants are indexed to the Company’s common stock and are required to be settled through physical settlement or net share settlement, if exercised.

Upon issuance, the $21.5 million fair value of the Warrants was recorded in additional paid-in capital on the accompanying balance sheets, and was determined using a stochastic Monte Carlo simulation using geometric Brownian motion (“GBM Model”). The Company evaluated the Warrants under authoritative accounting guidance and determined that they should be classified as equity instruments, with no recurring fair value measurement required. There have been no changes to the initial carrying amount of the Warrants since issuance.

No Warrants were exercised during the nine months ended September 30, 2022. During the second quarter of 2021, the Company issued 5,918,089 shares of common stock as a result of the cashless exercise of 5,922,260 Warrants at a weighted-average share price of $15.45 per share, as determined under the terms of the Warrant Agreement. At the request of stockholders and pursuant to the Company’s obligations under the Warrant Agreement, a registration statement covering the resale of a majority of these shares was filed with the U.S. Securities and Exchange Commission (“SEC”) on June 11, 2021.

Dividends

During the third quarter of 2022, the Company’s Board of Directors approved an increase to the Company’s fixed dividend to $0.60 per share annually, to be paid in quarterly increments of $0.15 per share. During the three months ended September 30, 2022, cash dividends declared totaled $18.4 million, and will be paid on November 7, 2022, to stockholders of record at the close of business on October 25, 2022.

Note 4 - Income Taxes

The provision for income taxes for the three and nine months ended September 30, 2022, and 2021, consists of the following:


	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2022			2021			2022			2021

	(in thousands)
Current portion of income tax expense:
Federal	$	(7,014)		$	—		$	(11,287)		$	—
State	(2,317)			(29)			(4,668)			(187)
Deferred portion of income tax (expense) benefit	(110,048)			68			(202,996)			282
Income tax (expense) benefit	$	(119,379)		$	39		$	(218,951)		$	95

Effective tax rate	19.9		%	—		%	20.4		%	—		%

Recorded income tax expense or benefit differs from the amount that would be provided by applying the statutory United States federal income tax rate to income or loss before income taxes. These differences primarily relate to the effect of state income taxes, excess tax benefits and deficiencies from stock-based compensation awards, tax deduction limitations on the compensation of covered individuals, changes in valuation allowances, the cumulative effect of other smaller permanent differences, and can also reflect the cumulative effect of an enacted tax rate change, in the period of enactment, on the Company’s net deferred tax asset and liability balances. The quarterly rate and the resulting income tax (expense) benefit can also be affected by the proportional effects of forecast net income or loss and the correlative effect on the valuation allowance for each period presented, as reflected in the table above. Forecast net income had a larger impact on the effective tax rate for the three and nine months ended September 30, 2022, compared with the same periods in 2021, and valuation allowance adjustments had a larger impact on the effective tax rate for the three and nine months ended September 30, 2021, compared with the same periods in 2022.

For all years before 2019, the Company is generally no longer subject to United States federal or state income tax examinations by tax authorities.

Note 5 - Long-Term Debt

Credit Agreement

On August 2, 2022, the Company entered into a Seventh Amended and Restated Credit Agreement by and among the Company, Wells Fargo Bank, National Association, as Administrative Agent and Swingline Lender (“Agent”), and the institutions named therein as lenders. The Credit Agreement provides for a senior secured revolving credit facility with a maximum loan amount of $3.0 billion, an initial borrowing base of $2.5 billion, and initial aggregate lender commitments totaling $1.25 billion. As of September 30, 2022, the borrowing base and aggregate lender commitments under the Credit Agreement remained unchanged. The revolving credit facility is secured by substantially all of the Company’s proved oil and gas properties. The borrowing base is subject to regular, semi-annual redetermination, and considers the value of both the Company’s (a) proved oil and gas properties reflected in the Company’s most recent reserve report; and (b) commodity derivative contracts, each as determined by the Company’s lender group. The next scheduled borrowing base redetermination date is April 1, 2023. The Credit Agreement is scheduled to mature on the earlier of (a) August 2, 2027 (“Stated Maturity Date”), or (b) 91 days prior to the maturity date of any of the Company’s outstanding Senior Notes, as defined below, to the extent that, on or before such date, the respective Senior Notes have not been repaid, exchanged, repurchased, refinanced, or otherwise redeemed in full, and, if refinanced or exchanged, with a scheduled maturity date that is not earlier than at least 180 days after the Stated Maturity Date.

In addition to other terms, conditions, agreements, and provisions, the Credit Agreement establishes the Secured Overnight Financing Rate (“SOFR”) as the benchmark for determining interest rates in replacement of the London Interbank Offered Rate (“LIBOR”). LIBOR was discontinued as a global reference rate for new loans and contracts after December 31, 2021. The financial covenants under the Credit Agreement require, among other customary covenants, that the Company’s (a) total funded debt, as defined by the Credit Agreement, to 12-month trailing adjusted EBITDAX ratio cannot be greater than 3.50 to 1.00 on the last day of each fiscal quarter; and (b) adjusted current ratio, as defined in the Credit Agreement, cannot be less than 1.00 to 1.00 as of the last day of any fiscal quarter.

Interest and commitment fees associated with the revolving credit facility are accrued based on a borrowing base utilization grid set forth in the Credit Agreement, as presented in the table below. At the Company’s election, borrowings under the Credit Agreement may be in the form of SOFR, Alternate Base Rate (“ABR”), or Swingline loans. SOFR loans accrue interest at SOFR plus the applicable margin from the utilization grid, and ABR and Swingline loans accrue interest at a market-based floating rate, plus the

applicable margin from the utilization grid. Commitment fees are accrued on the unused portion of the aggregate lender commitment amount at rates from the utilization grid.


Borrowing Base Utilization Percentage	<25%		≥25% <50%		≥50% <75%		≥75% <90%		≥90%
SOFR Loans	2.000	%	2.250	%	2.500	%	2.750	%	3.000	%
ABR Loans or Swingline Loans	1.000	%	1.250	%	1.500	%	1.750	%	2.000	%
Commitment Fee Rate	0.375	%	0.375	%	0.500	%	0.500	%	0.500	%

The following table presents the outstanding balance, total amount of letters of credit outstanding, and available borrowing capacity under the Credit Agreement as of October 27, 2022, September 30, 2022, and December 31, 2021:


	As of October 27, 2022		As of September 30, 2022		As of December 31, 2021

	(in thousands)
Revolving credit facility (1)	$	—	$	—	$	—
Letters of credit (2)	6,000		6,000		2,500
Available borrowing capacity	1,244,000		1,244,000		1,097,500
Total aggregate lender commitment amount	$	1,250,000	$	1,250,000	$	1,100,000

____________________________________________

(1) Unamortized deferred financing costs attributable to the revolving credit facility are presented as a component of the other noncurrent assets line item on the accompanying balance sheets and totaled $11.4 million and $2.7 million as of September 30, 2022, and December 31, 2021, respectively. These costs are being amortized over the term of the revolving credit facility on a straight-line basis.

(2) Letters of credit outstanding reduce the amount available under the revolving credit facility on a dollar-for-dollar basis.

Senior Secured Notes

On June 17, 2022, the Company redeemed all of the $446.7 million of aggregate principal amount outstanding of its 10.0% Senior Secured Notes due 2025 (“2025 Senior Secured Notes” or “Senior Secured Notes”). The 2025 Senior Secured Notes were redeemed with cash on hand, at a redemption price equal to 107.5 percent of the principal amount outstanding on the date of the redemption, plus accrued and unpaid interest. Upon redemption, the Company recorded a net loss on extinguishment of debt of $67.2 million which included $33.5 million of premium paid, $26.3 million of accelerated unamortized debt discount, and $7.4 million of accelerated unamortized deferred financing costs. The Company canceled all redeemed 2025 Senior Secured Notes upon settlement.

The 1.50% Senior Secured Convertible Notes due 2021 (“2021 Senior Secured Convertible Notes”) matured on July 1, 2021, and on that day, the Company used borrowings under its revolving credit facility to retire at par the outstanding principal amount of $65.5 million. Interest expense recognized on the 2021 Senior Secured Convertible Notes related to the stated interest rate and amortization of the debt discount. No interest expense was recognized for the three months ended September 30, 2021, and $2.3 million of interest expense was recognized for the nine months ended September 30, 2021.

Senior Secured Notes, net of unamortized discount and deferred financing costs, included within the Senior Notes, net line item on the accompanying balance sheets, as of December 31, 2021, consist of the following:


	As of December 31, 2021
	(in thousands)

Principal amount of 10.0% Senior Secured Notes due 2025	$	446,675
Unamortized debt discount	30,236
Unamortized deferred financing costs	8,727
10.0% Senior Secured Notes due 2025, net of unamortized debt discount and deferred financing costs	$	407,712

Senior Unsecured Notes

Senior Unsecured Notes, net of unamortized deferred financing costs, included within the Senior Notes, net line item on the accompanying balance sheets as of September 30, 2022, and December 31, 2021, consist of the following (collectively referred to as “Senior Unsecured Notes,” and together with the 2025 Senior Secured Notes, “Senior Notes”):


	As of September 30, 2022						As of December 31, 2021
	Principal Amount		Unamortized Deferred Financing Costs		Principal Amount, Net		Principal Amount		Unamortized Deferred Financing Costs		Principal Amount, Net

	(in thousands)
5.0% Senior Notes due 2024	$	—	$	—	$	—	$	104,769	$	403	$	104,366
5.625% Senior Notes due 2025	349,118		1,686		347,432		349,118		2,160		346,958
6.75% Senior Notes due 2026	419,235		2,744		416,491		419,235		3,270		415,965
6.625% Senior Notes due 2027	416,791		3,366		413,425		416,791		3,949		412,842
6.5% Senior Notes due 2028	400,000		5,919		394,081		400,000		6,679		393,321
Total	$	1,585,144	$	13,715	$	1,571,429	$	1,689,913	$	16,461	$	1,673,452

The Senior Unsecured Notes are unsecured senior obligations and rank equal in right of payment with all of the Company’s existing and any future unsecured senior debt and are senior in right of payment to any future subordinated debt. The Company may redeem some or all of its Senior Unsecured Notes prior to their maturity at redemption prices based on a premium, plus accrued and unpaid interest as described in the indentures governing the Senior Unsecured Notes.

On February 14, 2022, the Company redeemed all of the $104.8 million of aggregate principal amount outstanding of its 5.0% Senior Notes due 2024 (“2024 Senior Notes”), with cash on hand, pursuant to the terms of the indenture governing the 2024 Senior Notes which provided for a redemption price equal to 100 percent of the principal amount of the 2024 Senior Notes on the date of redemption, plus accrued and unpaid interest. The Company canceled all redeemed 2024 Senior Notes upon settlement.

On June 23, 2021, the Company issued $400.0 million in aggregate principal amount of its 6.5% Senior Notes at par with a maturity date of July 15, 2028 (“2028 Senior Notes”). The Company received net proceeds of $392.8 million after deducting fees of $7.2 million, which are being amortized as deferred financing costs over the life of the 2028 Senior Notes. The net proceeds were used to repurchase $193.1 million and $172.3 million of outstanding principal amount of the Company’s 6.125% Senior Notes due 2022 (“2022 Senior Notes”) and 2024 Senior Notes, respectively, through a cash tender offer (“Tender Offer”), and to redeem the remaining $19.3 million of 2022 Senior Notes not repurchased as part of the Tender Offer (“2022 Senior Notes Redemption”). The Company paid total consideration, excluding accrued interest, of $385.3 million, and recorded a net loss on extinguishment of debt of $2.1 million for the three months ended June 30, 2021, which included $1.5 million of accelerated unamortized deferred financing costs and $0.6 million of net premiums. The Company canceled all repurchased and redeemed 2022 Senior Notes and 2024 Senior Notes upon settlement.

Please refer to Note 5 - Long-Term Debt in the 2021 Form 10-K for additional detail on the Company’s Senior Notes.

Covenants

As discussed above, the Company is subject to certain financial and non-financial covenants under the Credit Agreement and under the indentures governing the Senior Notes that, among other terms, limit the Company’s ability to incur additional indebtedness, make restricted payments including dividends and common stock repurchases, sell assets, create liens that secure debt, enter into transactions with affiliates, merge or consolidate with other entities, and with respect to the Company’s restricted subsidiaries, permit the consensual restriction on the ability of such restricted subsidiar